Questions about Margin Accounts

metalheadrr3 · 11-05-2005, 12:10 PM

I recently enabled Margin trading in my Ameritrade account and had some questions about using it.

First off; I know that they apply the interest monthly; but am I correct in assuming the 8.25% [9.25% for people under 25K like me] is annual; making the monthly 0.77%?

Secondly is I buy 1000 worth of a stock on margin and later add 1000 in cash, does that eliminate my margin balance? Or do I still need to sell the stock?

I don't plan on doing any high risk trades ... I plan mainly on using it to establish larger (or initial) positions in stocks I see moving over the next few months. My part time job doesn't allow me the greatest flexability with investing. I always seem to have my best ideas when I have no money to act on them [DIOD still comes to mind, I wanted it when it was at $19 ... it's at 36 now]. Hopefully this will help with that. What do you guys use margin balances for [if at all]

Damon · 11-05-2005, 01:13 PM

I added margin to my account a year ago. It is a useful tool, but be very careful how you use it. Having a high margin balance when the market (or your stocks in particular) heads south can force you to sell things prematurely or come up with quick cash to add to the account if your equity percentage gets below the minimum level. It should all be explained in your margin contract.

The answer to your first question is yes. 9.25% is the annual percentage rate. Interest will be added to your margin balance on a monthly basis at (9.25% / 12). Adding cash to your account will eliminate an equal amount of the margin balance. For example, if you had purchased $2000 of securities on margin and then made a cash deposit of $1500, your cash balance would be zero and you'd still have a margin balance of $500.

That's how I understand things anyway. Hope it helps.

Hexum · 11-05-2005, 01:54 PM

You are correct Damon. If you have a 2000 margin balance and you put 2000 cash in your margin goes to 0. I have a margin account but rarely use it.

xboilermaker · 11-05-2005, 02:04 PM

Scottrade charges interest compounded daily over 360 days, not 365. Not sure how much th interest rate, but know that it is miniscule, under 2% of what 365 basis would cost. I am a few $000 into my margin, but don't even attempt to calculate how much it is costing, since everything is constantly moving. So far, my charges have been minor, and if we get a good market rise, are unimportant. I love this type of gambling, though Cramer used to denounce it, but hasn't commented on it in months. Only thing I could find more exciting is options, but can't grasp them, so I got to settle for margin at hopefully the right time. I intend to use it more, soon, but staying at least 20% below maximum allowed.

Edit; Just checked acct. history for Oct., and find a little more than thought
Margin interest 23 days @ 9% on avg debit balance of 5,593.88 = $32.16
Credit interest 8 days @ 1% on avg credit balance of 2,777.76 = .62
Their money appears to be worth many times what ours is. 1%, what a joke. Why give anything?

metalheadrr3 · 11-05-2005, 02:44 PM

Yea evey now and then Ameritrade gives me a couple of pennies for the cash I keep in there. I never really keep money in cash though. I do not plan on usings even 1/2 of my margin balance. Just enough to get into some good positions =). Now to find some good solid stocks =).

metalheadrr3 · 11-05-2005, 03:18 PM

Ok after thinking a bit I have some ideas of what I want to do.

First off; I have shares of Yahoo which are probably going to be sold shortly [I've had them for a while, got in around 26 I think]; I will sell if it hits 38.

There are 4 stocks I am looking at that look like they can see some green in the near term and maybe long term too.

Sysco [SYY] ... it's at 30.04. It has support at 29.99. Jubak recently reccomended it and it looks good at this level.

iShares Japan [EWJ] I need some international exposure and with improving conditions in Japan this might be good. This is at a high but maybe on a pullback it could be a good play.

Activision [ATVI] Solid company, large gap down, slowly inching back up. Maybe it can fill that gap for a nice sized gain.

Komag [KOMG] .. it's practically sitting on it's 200 day moving average. People have been reccomending this a lot and it's look like it's slowed it's decent, it might be ready for a trend reversal.

I don't know much about TA, I am more comfortable with Fundamentals, but I like TA to help find good entry / exit points ... any thoughts on these stocks?

11-05-2005, 12:10 PM	#1
metalheadrr3 valued contributor weekly challenge winner Join Date: Sep 2005 Location: Kennesaw, Georgia Posts: 532	Questions about Margin Accounts I recently enabled Margin trading in my Ameritrade account and had some questions about using it. First off; I know that they apply the interest monthly; but am I correct in assuming the 8.25% [9.25% for people under 25K like me] is annual; making the monthly 0.77%? Secondly is I buy 1000 worth of a stock on margin and later add 1000 in cash, does that eliminate my margin balance? Or do I still need to sell the stock? I don't plan on doing any high risk trades ... I plan mainly on using it to establish larger (or initial) positions in stocks I see moving over the next few months. My part time job doesn't allow me the greatest flexability with investing. I always seem to have my best ideas when I have no money to act on them [DIOD still comes to mind, I wanted it when it was at $19 ... it's at 36 now]. Hopefully this will help with that. What do you guys use margin balances for [if at all]

11-05-2005, 02:04 PM	#4
xboilermaker valued contributor weekly challenge winner 2x Join Date: Aug 2005 Location: Rincon, Puerto Rico Posts: 612	Scottrade charges interest compounded daily over 360 days, not 365. Not sure how much th interest rate, but know that it is miniscule, under 2% of what 365 basis would cost. I am a few $000 into my margin, but don't even attempt to calculate how much it is costing, since everything is constantly moving. So far, my charges have been minor, and if we get a good market rise, are unimportant. I love this type of gambling, though Cramer used to denounce it, but hasn't commented on it in months. Only thing I could find more exciting is options, but can't grasp them, so I got to settle for margin at hopefully the right time. I intend to use it more, soon, but staying at least 20% below maximum allowed. Edit; Just checked acct. history for Oct., and find a little more than thought Margin interest 23 days @ 9% on avg debit balance of 5,593.88 = $32.16 Credit interest 8 days @ 1% on avg credit balance of 2,777.76 = .62 Their money appears to be worth many times what ours is. 1%, what a joke. Why give anything? __________________ RinconPR.com - islandmon.com No Shoes, No Shirt, No Problem

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11-05-2005, 01:13 PM	#2
Damon valued contributor Join Date: Oct 2005 Location: Los Angeles, CA Posts: 438	I added margin to my account a year ago. It is a useful tool, but be very careful how you use it. Having a high margin balance when the market (or your stocks in particular) heads south can force you to sell things prematurely or come up with quick cash to add to the account if your equity percentage gets below the minimum level. It should all be explained in your margin contract. The answer to your first question is yes. 9.25% is the annual percentage rate. Interest will be added to your margin balance on a monthly basis at (9.25% / 12). Adding cash to your account will eliminate an equal amount of the margin balance. For example, if you had purchased $2000 of securities on margin and then made a cash deposit of $1500, your cash balance would be zero and you'd still have a margin balance of $500. That's how I understand things anyway. Hope it helps.

11-05-2005, 01:54 PM	#3
Hexum valued contributor Join Date: Aug 2005 Location: Oklahoma Posts: 71	You are correct Damon. If you have a 2000 margin balance and you put 2000 cash in your margin goes to 0. I have a margin account but rarely use it.

11-05-2005, 02:44 PM	#5
metalheadrr3 valued contributor weekly challenge winner Join Date: Sep 2005 Location: Kennesaw, Georgia Posts: 532	Yea evey now and then Ameritrade gives me a couple of pennies for the cash I keep in there. I never really keep money in cash though. I do not plan on usings even 1/2 of my margin balance. Just enough to get into some good positions =). Now to find some good solid stocks =).

11-05-2005, 03:18 PM	#6
metalheadrr3 valued contributor weekly challenge winner Join Date: Sep 2005 Location: Kennesaw, Georgia Posts: 532	Ok after thinking a bit I have some ideas of what I want to do. First off; I have shares of Yahoo which are probably going to be sold shortly [I've had them for a while, got in around 26 I think]; I will sell if it hits 38. There are 4 stocks I am looking at that look like they can see some green in the near term and maybe long term too. Sysco [SYY] ... it's at 30.04. It has support at 29.99. Jubak recently reccomended it and it looks good at this level. iShares Japan [EWJ] I need some international exposure and with improving conditions in Japan this might be good. This is at a high but maybe on a pullback it could be a good play. Activision [ATVI] Solid company, large gap down, slowly inching back up. Maybe it can fill that gap for a nice sized gain. Komag [KOMG] .. it's practically sitting on it's 200 day moving average. People have been reccomending this a lot and it's look like it's slowed it's decent, it might be ready for a trend reversal. I don't know much about TA, I am more comfortable with Fundamentals, but I like TA to help find good entry / exit points ... any thoughts on these stocks?